We recently compiled a list of the 10 Cash-Rich Small Cap Stocks To Invest In According To Analysts. In this article, we are going to take a look at where Integral Ad Science Holding Corp. (NASDAQ:IAS) stands against the other cash-rich small cap stocks.
Small-cap stocks in the US have been under pressure, with the Russell small cap index falling 10% from its November highs as of January 2025. In contrast, the S&P index, which tracks large-cap stocks, declined by less than 3% during the same period. President Trump’s focus on domestic economic growth could make small-cap stocks more attractive. However, the prospect of higher interest rates has become a major hurdle. Rising borrowing costs tend to impact smaller companies more than larger ones. Keith Lerner, co-chief investment officer at Truist Advisory Services, described this as a “tug of war” – where strong economic growth could benefit small caps, but higher rates work against them.
Market sentiment toward small caps has weakened due to expectations of fewer interest rate cuts, especially after the Federal Reserve raised its inflation forecast for 2025. Despite this, some experts believe small businesses could benefit from Trump’s policies, particularly reduced regulations and support for domestic industries. Sameer Samana, senior global market strategist at Wells Fargo Investment Institute, pointed out that small companies are more US-focused than multinational corporations. However, Trump’s approach to tariffs could create challenges by disrupting supply chains, which may hurt smaller businesses too.
After years of trailing behind large-cap stocks, small caps finally seem ready for a comeback, according to RBC Wealth Management. Over the past five years, major economic and global events, such as pandemic-led lockdowns, economic rebounds, government stimulus, inflation, rising interest rates, and the rapid rise of AI, have widened the gap between small and large-cap stock performance. Large-cap stocks have delivered solid returns in four of the last five years, leaving small caps struggling to keep up. Historically, factors such as mergers and acquisitions and initial public offerings have played a key role in small-cap growth, but IPO activity in the small-cap space has been weak.
Although 2024 saw some improvement, with an average of 31 IPOs per quarter and $7 billion in total value, these numbers are still below pre-pandemic levels. That said, signs of a recovery started to emerge toward the end of 2024. Looking ahead, 2025 may be a turning point for small caps, as per RBC’s report. The Federal Reserve’s move toward lower interest rates could encourage businesses to take more risks, boosting M&A and IPO activity. As conditions improve, small caps could start closing the gap with large caps. Lower rates, increased corporate expansion, stronger market activity, and a more supportive regulatory environment could fuel small-cap growth. In addition, with large caps becoming expensive and investor expectations rising, more investors may look toward undervalued small-cap stocks for better opportunities.
Our Methodology
For this article, we used the Finviz stock screener to find small-cap stocks with strong cash reserves. We filtered for companies with market caps between $300 million and $2 billion and a current ratio (CR) above 2, which indicates they have more assets than liabilities, due to high cash reserves, receivables, or inventory. After that, we manually looked for companies with a trailing twelve-month (TTM) operating cash flow of over $50 million as of December 31, 2024. From there, we picked 10 stocks with the highest cash reserves. These stocks also had an average upside potential of more than 20% based on Wall Street analyst estimates as of March 4. We included hedge fund sentiment as of Q4 2024 as well. Below, we have ranked the list in ascending order of upside potential.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
Small business owners with their laptops sitting at a coffee shop, discussing their digital advertising strategy.
Integral Ad Science Holding Corp. (NASDAQ:IAS)
TTM Operating Cash Flow as of December 31, 2024: $117,898,000
Number of Hedge Fund Holders: 28
Average Upside Potential: 37.84%
Integral Ad Science Holding Corp. (NASDAQ:IAS) is a digital advertising verification company that operates in the US, the UK, France, Ireland, and other regions. It offers IAS Signal, a cloud-based platform designed to help advertisers maximize their return on ad spend. On March 4, Loop Capital Markets maintained a Buy rating on Integral Ad but lowered its price target for the shares from $15 to $13, reflecting its investment potential. IAS is placed 5th on our list of the best cash rich stocks to invest in.
In Q4 2024, Integral Ad Science Holding Corp. (NASDAQ:IAS)’s revenue increased 14% to $153 million, with an adjusted EBITDA margin of 40%. For the full year 2024, revenue grew 12%, reaching $530.1 million at a 36% adjusted EBITDA margin. The company strengthened its market position by advancing its technology, expanding partnerships with key advertisers, platforms, and publishers, and enhancing its leadership team with a new chief operating officer and chief product officer. Strong cash flow and a solid balance sheet were also maintained, with $84 million in cash and cash equivalents at the end of Q4. Looking ahead, IAS expects Q1 2025 revenue to be between $128 million and $131 million, reflecting approximately 13% year-over-year growth at the midpoint.
As per Insider Monkey’s fourth quarter database, 28 hedge funds were bullish on Integral Ad Science Holding Corp. (NASDAQ:IAS), in contrast to the previous quarter when 24 funds had invested in the stock. Robert Smith’s Vista Equity Partners was the biggest stakeholder of the company, with a position worth $678.7 million.
Overall IAS ranks 5th on our list of the best cash-rich small cap stocks to buy. While we acknowledge the potential of IAS as an investment, our conviction lies in the belief that certain AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than IAS but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 20 Best AI Stocks To Buy Now and Complete List of 59 AI Companies Under $2 Billion in Market Cap.
Disclosure: None. This article is originally published at Insider Monkey.
